WASHINGTON—Federal Housing Finance Agency (FHFA) Director Mel Watt told the House Financial Services Committee that it would be "irresponsible" for the government-sponsored enterprises (GSEs) to not be allowed to rebuild their capital buffers.
The GSEs' capital buffers will be cut to zero as of Jan. 1, which means there are any losses experienced at either Fannie Mae or Freddie Mac, the GSEs would have to draw on their line of credit from the Treasury Department, thereby forcing taxpayers to make up the difference, NAFCU noted.
The GSEs were placed into conservatorship following the 2008 financial crisis. As part of an agreement between the Treasury Department and the FHFA, the GSEs are required to send all of their income to the Treasury. During Tuesday's hearing, Watt said he and Treasury Secretary Steven Mnuchin were working together to avoid going to taxpayers for financial help, NAFCU reported.
Allowing the GSEs to rebuild their capital buffers is a key part of the NAFCU's housing finance reform principles, NAFCU noted.
“This would better protect the housing finance system and provide for more liquidity, allowing credit unions to make more loans to their members,” the trade association stated.
Watt also said during Tuesday's hearing that the GSEs' use of alternative credit scores would do little to improve access to credit since "both Fannie and Freddie are using information other than credit scores to increase access to credit anyway."
Recently, Senate Banking Committee members Tim Scott (R-SC) and Mark Warner (D-VA) introduced the Credit Score Competition Act, S 1685, which would authorize the FHFA to set standards and criteria for any process used by the enterprises to validate and approve credit scoring models. NAFCU, which supports the legislation, has met with Scott to discuss this bill.